...Business, a publicly traded biotechnology company started production and sales of its main product – cartridges that allow DNA samples for analysis on a microchip. At the beginning of the quarter, sales are difficult to predict, and the company is experiencing fluctuations in output and unpredictable gross profit, which violates the board of directors. Financial staff is investigating whether to accept the new value-based approach to quality. With plenty of spare capacity, the decision on how to apply the potential costs is critical to the company’s management and reporting strategy with analysts. Work the Youngstown Products numerical example on the following page. (This should takeonly a few minutes and is basically a short refresher on a phenomenon we saw in the Bridgetoncase.)2. The cartridge margins shown in Tables A and B vary from 17% to 65%. What elements of cost account for the difference between the 2000 Actual and 2001 Budget margins in Table A?What elements of cost account for the difference between the margins in the original 2001Budget in Table A versus the revised 2001 Budget in Table B? For each element, why do youthink costs changed between 2000 and 2001 between the original and revised budgets in2001? What would you predict for each cost in the long-run?3. Kelly, Puleski, and Yeltin meet to discuss concerns about both “long-term profitability of thebusiness” and “short-term profitability.” Discuss how well the current standard cost systemshelps the board and...
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...Anagene Inc. established itself in an emerging market that features fluctuating sales. The fast growth in the genetics market and the emergence of new customers makes it difficult for our analysts to project future sales. In the past, Anagene sold workstations with four cartridges; however, our current marketing strategy focuses on selling more expensive individual cartridges. Another reason for fluctuating sales margins is customers reusing cartridges instead of purchasing new cartridges. Expected demand is the basis for budgeted volume. Therefore, budgeted volume adversely affects pricing and gross margin stability because Anagene has fluctuating sales. Anagene's use of a volatile budgeted volume as the denominator volume leads to varying allocated fixed overhead costs (Exhibit A). Assigning budgeted volume to fixed overhead costs causes gross margin to fluctuate (in this case decrease) in the long run. If management uses gross margin as the basis for pricing strategy, it could lead to a death spiral1 (Exhibit B). Assignment of Overhead Costs to Cartridges The assignment of overhead costs is an important factor for Kelly. It affects cost measurement and explores the possible existence of idle capacity. Currently, Anagene's assignment of overhead costs is based on budgeted volume. However, by using practical capacity as the denominator volume, Anagene reduces allocated fixed overhead costs per unit and increases gross margin. Anagene's stable2 level of operations,...
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...Anagene is a biotechnology firm started by Mark Hansen and Harold Bergman in 1993. Hansen and Bergman planned to combine microelectronics and molecular biology to develop products that would have broad commercial applications in genomics and other fields. Anagene’s mission was to facilitate breakthrough genetic analysis. The company went public in the year 1998 and raised $42.9 million. The company’s core product was a cartridge which had to be analyzed with a Anagene-designed workstation. Management anticipated a long string of cartridge sales following the sale of each Anagene workstation. Product Information WORKSTATION Anagene’s first major product was a proprietary platform technology – The Anagene Molecular Biology Workstation. This included a loader (which could load four cartridges at a time), a reader (which read and analyzed one cartridge at a time) and a disposable cartridge that contained the company’s proprietary microchip. The product was priced at $160,000 – each workstation shipped with four cartridges. CARTRIDGES Anagene also sold disposable cartridges – priced at $150 each. Each cartridge contained an electronic chip that held test sites laid out in a geometric grid called an array. Cartridges could perform up to 99 tests on any single sample. As the company sold more workstations, it expected the demand for its cartridges to increase rapidly. MANUFACTURING Anagene’s management decided to outsource the production of workstations to Hitachi. Hitachi and...
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...Why do we have fluctuating gross margins? Anagene Inc. established itself in an emerging market that features fluctuating sales. The fast growth in the genetics market and the emergence of new customers makes it difficult for our analysts to project future sales. In the past, Anagene sold workstations with four cartridges; however, our current marketing strategy focuses on selling more expensive individual cartridges. Another reason for fluctuating sales margins is customers reusing cartridges instead of purchasing new cartridges. Expected demand is the basis for budgeted volume. Therefore, budgeted volume adversely affects pricing and gross margin stability because Anagene has fluctuating sales. Anagene's use of a volatile budgeted volume as the denominator volume leads to varying allocated fixed overhead costs (Exhibit A). Assigning budgeted volume to fixed overhead costs causes gross margin to fluctuate (in this case decrease) in the long run. If management uses gross margin as the basis for pricing strategy, it could lead to a death spiral1 (Exhibit B). Assignment of Overhead Costs to Cartridges The assignment of overhead costs is an important factor for Kelly. It affects cost measurement and explores the possible existence of idle capacity. Currently, Anagene's assignment of overhead costs is based on budgeted volume. However, by using practical capacity as the denominator volume, Anagene reduces allocated fixed overhead costs per unit and increases gross margin...
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...Class offerings for fall 2013: 1-2. BT/BTE6023 BIOTECHNOLOGY AND HEALTH CARE and BT/BTE6033 BIOSENSORS & BIOCHIPS. These courses are required for both BT and BTE students. Instructor: Evgeny Vulfson 3. BE6703 MATERIALS IN MEDICINE by Prof Richard Gross. BT students are required to take either this class or Protein Engineering offered in spring. 4. CM 8213 BIOANALYTICAL CHEMISTRY (listed under CM). This semester the class will be taught by Prof Abhijit Mitra. It is an elective course for both BT and BTE; particularly useful for students who are looking for a career as bench scientists or PhD. 5. BMS8013/BMS8011 ADVANCED MOLECULAR BIOLOGY. As last year the class will be taught by Prof John Katsigeorgis. This class comprises lectures (3 credits) and labs (1.5 credits). Students can take lectures with no labs, but not the other way around. The syllabus from last year is attached (there will be a few minor changes). If interested, enroll soon because the number of lab spaces is limited. 6. BT7013/BT7011 SPECIAL TOPICS IN BIOTECHNOLOGY: GENETIC ENGINEERING by Prof John Katsigeorgis. This class also comprises lectures (3 credits) and labs (1.5 credits) and it is supposed to be more advanced than Molecular Biology i.e. students must be familiar with the content and techniques covered in BMS8013/BMS8011. The syllabus from last year is attached (there may minor changes). If interested, enroll soon because the number of lab spaces is limited. 7. BT7011 SPECIAL TOPICS IN BIOTECHNOLOGY: Business...
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...Anagene Case Study ANagene Case study Ans 1) Anagene allocated overhead costs to standard product costs using a budgeted/forecasted volume. But the volume of cartridges sold kept fluctuating each month but Anagene did not change the budgeted rate based upon the volume sold. As a result, overhead costs allocated to each cartridge increased each month when volume sold was less than the forecasted volume. This caused the fluctuating margins for the cartridges. Ans 2) Overhead costs need to be accounted for, as we need to understand how much does it cost in total to actually produce a unit of product. Only labor and material cannot produce a product, management hours and several other indirect costs have to be incurred in order to produce a unit of product. Therefore , I don’t think Kelly should be concerned with assignment of overhead costs and gross margin to allocated overhead as long as the projected volume equals sales volume. But since in the case this is not true, therefore Kelly should be concerned with what types of drivers are being used for allocation to get a better estimate of actual product cost including allocated overhead costs. If Kelly uses only Variable contribution for management decisions, she will miss a big component of fixed and overhead allocation that also needs to be absorbed as part of the product cost. Lets say that the variable contribution margin shows constant but in the financial statements the overhead and fixed costs will show up as expenses...
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...Cost management lecture slide summary Lecture 1 Reasons for US growth 1977-‐2007: end of cold war; China; spread of Internet; Financial deregulation and easy. Business inputs: land; material; labour; capital; enterprise; technology. Business decisions bound inputs with outputs Output: goods, service, information and data. Economically viability; financial variability; Efficiency ($, lowest cost) and Productivity (volume term) Economic efficiency: technical efficiency (values at production possibility frontier) and allocation efficiency (selecting the point, opportunity costs) Business decisions comprise from: -‐ -‐ -‐ -‐ -‐ Economic: micro (price, supply & demand, cost) and macro (inflation, tax) Finance: capital structure (WACC) and capital budget (company value over market) Management Marketing: 5P’s (price, place, people, product, promotion) Accounting: financial (FS, reporting) and cost accounting () Cost types: a) Direct (labour, material) b) Overheads ...
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...ANagene Case study Ans 1) Anagene allocated overhead costs to standard product costs using a budgeted/forecasted volume. But the volume of cartridges sold kept fluctuating each month but Anagene did not change the budgeted rate based upon the volume sold. As a result, overhead costs allocated to each cartridge increased each month when volume sold was less than the forecasted volume. This caused the fluctuating margins for the cartridges. Ans 2) Overhead costs need to be accounted for, as we need to understand how much does it cost in total to actually produce a unit of product. Only labor and material cannot produce a product, management hours and several other indirect costs have to be incurred in order to produce a unit of product. Therefore , I don’t think Kelly should be concerned with assignment of overhead costs and gross margin to allocated overhead as long as the projected volume equals sales volume. But since in the case this is not true, therefore Kelly should be concerned with what types of drivers are being used for allocation to get a better estimate of actual product cost including allocated overhead costs. If Kelly uses only Variable contribution for management decisions, she will miss a big component of fixed and overhead allocation that also needs to be absorbed as part of the product cost. Lets say that the variable contribution margin shows constant but in the financial statements the overhead and fixed costs will show up as expenses which again need...
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...History and Background Anagene is a biotechnology firm started by Mark Hansen and Harold Bergman in 1993. Hansen and Bergman planned to combine microelectronics and molecular biology to develop products that would have broad commercial applications in genomics and other fields. Anagene’s mission was to facilitate breakthrough genetic analysis. The company went public in the year 1998 and raised $42.9 million. The company’s core product was a cartridge which had to be analyzed with a Anagene-designed workstation. Management anticipated a long string of cartridge sales following the sale of each Anagene workstation. Product Information WORKSTATION Anagene’s first major product was a proprietary platform technology – The Anagene Molecular Biology Workstation. This included a loader (which could load four cartridges at a time), a reader (which read and analyzed one cartridge at a time) and a disposable cartridge that contained the company’s proprietary microchip. The product was priced at $160,000 – each workstation shipped with four cartridges. CARTRIDGES Anagene also sold disposable cartridges – priced at $150 each. Each cartridge contained an electronic chip that held test sites laid out in a geometric grid called an array. Cartridges could perform up to 99 tests on any single sample. As the company sold more workstations, it expected the demand for its cartridges to increase rapidly. MANUFACTURING Anagene’s management decided to outsource the production of workstations...
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